MARKET WATCHCrude, gasoline futures prices hit new highs

April 4, 2005
Crude and gasoline futures prices hit new highs Apr. 1 in the wake of a report by Goldman Sachs Group Inc., New York, that crude could jump to $75/bbl in 2006 and spike at $105/bbl in 2007 before plunging back to $30/bbl by 2010.

Sam Fletcher
Senior Writer

HOUSTON, Apr. 4 -- Crude and gasoline futures prices hit new highs Apr. 1 in the wake of a report by Goldman Sachs Group Inc., New York, that crude could jump to $75/bbl in 2006 and spike at $105/bbl in 2007 before plunging back to $30/bbl by 2010.

The Goldman Sachs equity team headed by analyst Arjun Murti on Mar. 31 hiked its "super spike" estimate to $50-105/bbl, from $50-80/bbl previously, because of continued strength in world oil demand and economic growth, especially in the US and China. The group also said retail gasoline prices could hit $4/gal during the multi-year "spike" period until high prices force a reduction in oil demand (OGJ Online, Apr. 1, 2005).

That forecast far outpaces public projections of many other energy analysts, including Robert S. Morris, Banc of America Securities, New York, who dismissed it as "highly sensational." Such a price spike, he said, "is highly unlikely and unreasonable apart from some catastrophic event."

'Froth' sparks OPEC talks
Nonetheless, he said, "The 'froth' surrounding such speculation is likely to prompt [the Organization of Petroleum Exporting Countries] to reinitiate talks to boost output targets by another 500,000 b/d."

"This morning, [benchmark US] front-month crude oil futures are trading above $58/bbl, a new all-time intraday high. Against this background, OPEC said over the weekend that it stands ready to announce another increase in production quotas," said analysts Apr. 4 in the Houston office of Raymond James & Associates.

Ahmad Fahad Al-Ahmad Al-Sabah, Kuwaiti oil minister and OPEC's conference president, told reporters in Kuwait on Apr. 4 that he initiated consultations 2 days earlier with other OPEC members on the possibility of hiking the group's output ceiling by another 500,000 b/d. On Mar. 16, OPEC immediately raised its production quota by 500,000 b/d to 27.5 million b/d, less than the group's previously acknowledged production level of 27.7 million b/d among the 10 affected members, minus Iraq.

Al-Sabah said OPEC ministers have agreed to watch the price trend for 2 weeks before deciding whether to increase the quota to 28 million b/d. Any new increase likely would not come until May, he said.

Energy prices
The May contract for benchmark US light, sweet crudes hit a record high of $57.70/bbl before closing at $57.27/bbl, up by $1.87 for Apr. 1 on the New York Mercantile Exchange. The June contact was up by the same amount, $1.87, to $58.29/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., repeated the same increase, $1.87, to $57.28/bbl. Gasoline for May delivery also topped at a new high of $1.76/gal prior to settling at $1.73/gal, up by 6.79¢ for the day, on NYMEX. Heating oil for the same month gained 4.77¢ to $1.66/gal.

The May natural gas contract rose by 9.6¢ to $7.75/MMbtu Apr. 1 on NYMEX, supported by a firm crude market and bullish technical trading as investment funds "continued to drive the entire energy complex to new record highs," said analysts at Enerfax Daily.

"The market is currently driven by the financial side of things with hedge funds leading the way. There is not a lot of fundamental news behind this rally," they said.

In London, the May contract for North Sea Brent jumped by $2.22 to $56.51/bbl Apr. 1 on the International Petroleum Exchange.

The average price for OPEC's basket of seven benchmark crudes escalated by $1.42 to $51.65/bbl on Apr. 1. So far this year, OPEC's basket price has averaged $44.08/bbl, up from an average $36.05/bbl for all of 2004.

Contact Sam Fletcher at [email protected]